The Retail Apocalypse
Tracking the closing of physical retail locations has garnered regular headlines over the course of 2017. As of early September, the “retail apocalypse” accounted for the closing of over 6,000 physical stores.
Yet, flying under the radar of the retail apocalypse is the story of one retailer who has been experiencing major growth: Dollar General.
The Retail Outlier
Currently, Dollar General has 14,000 brick and mortar locations — exceeding the number of Dollar Tree, CVS, Rite Aid, and Walgreens locations combined — and is planning to add 1,000 more stores in the near future. Dollar General thrives in rural, sparsely populated areas that have “shown few signs of the U.S. economic recovery,” where customers need a convenient place to buy basic items at a cheaper price than local operations offer. Its main success comes from doing what Walmart can’t: becoming a “lifeline for lower-income customers bypassed by other major chains,” and by reaching a lower-end market that is protected from competitors like Amazon.
The Core Customer
When considering where to open new locations, Dollar General uses data such as “proximity to a post office or church,” and in communities with fewer than 1,000 homes, they have opened smaller stores, around the size of a basketball court. The chain mostly leases its stores, which costs around $250,000 on average to open vs. millions in cost for opening the average grocery store or big-box store. The company plans to continue expanding “rapidly in poor, rural communities where it has come to represent not decline, but economic resurgence, or at least survival.” Prices are marked in 5-cent increments, which makes it “easier for shoppers to estimate the total price of their purchases,” and brands are packaged in smaller quantities to keep prices under $10. By recognizing who their customers are — those who shop multiple times a week, do not buy in bulk, need a store where they can stretch a budget, and are often reliant on government assistance — Dollar General has stepped forward to meet their customer needs as best as possible.
Yet, as Dollar General reshapes the retail landscape in rural and small towns, there are tradeoffs that customers have to consider. A recent story on NPR points out that many rural grocers consider Dollar General as a “top threat” to potentially putting them out of business. For example, a Dollar General that opened in Monville, Iowa in 2016 caused a local grocery store’s sales to drop by 30%. Customers recognize that these rural grocers offer items like “fresh meat and produce” that Dollar General does not, yet they also recognize that Dollar General sells items that “people haven’t been able to buy in town for decades.” As the NPR story reports, “ultimately, it's rural consumers who will decide whether what Dollar General brings to their hometowns is worth what it could be taking away.”
The growth of Dollar General defies the competitive trends that are driving the “retail apocalypse” — the same trends, primarily driven by Amazon and Walmart, that are causing many other retailers to embrace a shift to “experience shopping.” In part, Dollar General has bucked these trends because they understand how their core customer is different than the wealthier shopper other retailers covet. It is less clear if Dollar General is also investing in the new ways that many other retailers are approaching how they deliver service and training. In March, the company announced they were investing $70 million dollars in “raises and training” in an effort to improve service; coming on the heels of a slowdown in sales growth at the end of last year. So far, it looks like these efforts may have already started having a positive impact. Although it cannot be isolated to service alone, The Wall Street Journal recently reported that the chain saw quarterly sales rise at the fastest pace in three years, with sales in existing stores rising by over 4%.
All told, the story behind the “retail apocalypse” has many layers, and as the industry continues to evolve, Dollar General’s current and future growth has the attention of both retail workers and employers alike.